Will 2012 be a good year for the Puget Sound economy?

Jan 17, 2012

Local economist Dick Conway unveiled his economic forecast for the region recently, and he painted an optimistic picture, describing it as "a sunny day, with some clouds".

On this week's Money Matters, financial commentator Greg Heberlein tells KPLU's Dave Meyer that he thinks there's a good case for optimism this year.

Here's Greg's reaction to Conway's forecast:

Economist Dick Conway sees a Puget Sound economy on the mend. Various indicators, predicated in part on Seattle’s two biggest employers, Boeing and Microsoft, suggest the small steps of improvement in 2011 will continue in 2012.

Dick Conway has been doing this for 30 years. He knows the local economy inside and out, and is respected for his analysis and insights.

Economists often are accused of looking at the past six months and projecting into the future. Some consider their predictions derived more from Ouija boards than science.

Economists come in all flavors. I once had the privilege of interviewing perhaps the two most famous economists of the past century, John Kenneth Galbraith and Milton Friedman. 

Now dead, they were gentlemen and icons in the forecasting business. That’s about the only similarities. The two were at opposite ends of the economic spectrum. Galbraith believed government’s role was crucial. Friedman believed  government should play a minimal role, staying out of the way of private enterprise.

Conway is also a gentleman. He rarely forecasts in the extreme.  He says with employment at Boeing and Microsoft picking up, with retail sales headed higher, with exports from the nation’s top exporting state rising, we can be hopeful.

A downside, he added, could be the state’s regressive tax system.

On a national scale, I see headwinds that could turn all the good news into another 2008 collapse. Conway, incidentally, was among many who at the peak in January 2008 predicted the national recession wouldn’t hit the Puget Sound economy.     

These are not predictions, more like concerns for which we need resolution.  In one form or another, economic fears always exist.

There must be a moderate outcome to the economic Armageddon threatening Europe. One respected onlooker suggests that if that unwinds, the U.S. could face a $10 trillion problem.

Budget deficits continue to rise, both on the local and national levels. Without at least a slowing of the rate, if not a dramatic move in the opposite direction, we could drown in red ink.

If the economy shows signs of deteriorating, the contraction could occur faster than anyone thinks. 

Derivatives allow investors to buy a piece of paper representing, say, a stock, without owning the stock. They are elastic – they can multiply to the upside, or contract downward at the speed of light. The derivative market has ballooned from $100 trillion 10 years ago to $700 trillion today.

Consumers decide with their purchases how robust an economic expansion will be. Growing angst among those concerned about the wealthy getting wealthier could have negative economic consequences. Saving could supplant spending.

All things considered, let’s hope Conway’s improving-growth outlook holds sway.